The transatlantic smackdown is getting vicious, as Angela Merkel makes a point to demonstrate her refusal to follow Obama's policies before a business audience in Berlin. As Bloomberg reports, "Chancellor Angela Merkel championed German export strength as “the right thing” for her country, spurning President Barack Obama’s call to boost private spending as both leaders prepare for Group of 20 talks. Merkel, addressing a business audience in Berlin today, said she told Obama in a phone call that cutting government debt is “absolutely important for us,” exposing a second point of contention ahead of the June 26-27 G-20 summit in Canada." It appears Germany's chancellor is actually prudently thinking ahead after realizing that the recent bailout of Europe has massively angered potential voters, cost her parliamentary majority, and absent damage control, her career would come to a premature end. If that means openly mocking the pinnacle of Keynesian insanity these days, Washington D.C., so be it. It is strange that our own president has yet not realized his own political career will be very short unless he follows in Merkel's footsteps. Instead, he and the Fed will melt the market up to unprecedented highs in the months leading to the mid-term elections in hopes that this will presumably indicte just how strong the US economy is, even as fresh new millions in the GoM find themselves unemployed courtesy of some salt water content in the oily gulf. Perhaps Orszag is much smarter than people give him credit for: surely his pitchfork avoidance skills will come in very handy when the tide finally turns.

More from Bloomberg:

Reducing the budget deficit by 10 billion euros ($12 billion) per year “won’t put a brake on the world’s economic growth,” Merkel said, relating what she told Obama yesterday. Germans are more likely to spend money if they feel the government “is taking precautions” to ensure solid finances, she said.

Four days before world leaders meet in Toronto, Germany is heading for conflict with the rest of the G-20 over tighter financial regulation, a banking levy and U.S. calls to boost growth rather than cut debt.

The G-20 must “safeguard and strengthen” the economic recovery and promote “global demand growth that avoids the imbalances of the past,” Obama said in a June 16 letter to fellow G-20 leaders. He expressed concern about “heavy reliance on exports by some countries,” which he didn’t name. Treasury Secretary Timothy F. Geithner called on June 5 for “stronger domestic demand growth” in European countries like Germany that have trade surpluses.

The upcoming G-20 meeting will likely be very contentious:

Merkel said on June 11 that she expects to have a “hard time” from fellow leaders at the G-20 meeting, where Germany and France are leading Europe’s push for a global commitment to impose bank levies and a tax on financial transactions.

The G-20 faces a test of unity on the banking levy, a German government official said earlier today, warning that leaders can either pull together or split into two camps over the tax. The official spoke to reporters on condition of anonymity.

And the punchline:

Obama’s appeal “isn’t anything that goes against what we are doing,” Merkel told reporters yesterday. “If we don’t get onto a path of sustainable economic growth but have rather a growth bubble, then if the next crisis comes we won’t be able to pay for it.”

How long before our own "elected" leaders realize they should follow the will of the people, not the recommendations of economic advisers who have a 2 year shelf life?

I'm beginning to see and smell some rats leaving some sinking skips. We shall know the end is near when the rats repudiate the almighty dollar. That milestone is still some distance off, but getting closer on a daily basis. When, not if.

True dat, CD. I had copied the sentence from Tyler's post that struck me the most, and then saw your comment. Here's Tyler:

Perhaps Orszag is much smarter than people give him credit for: surely his pitchfork avoidance skills will come in very handy when the tide finally turns.

The rats are certainly moving... some are leaving the nest... others have left the nest and are already singing a new tune to placate the engraging masses.

Merkel and Osborne are both on the right side of the equation here. If Obama had entered his term with a massive budget surplus (thanks Mr. Bush) perhaps there would be more stimulus to work with. The question is whether Obama takes the next step to Keynesian Hell, or whether the light bulb turns on and the next step is the American version of austerity.

As long as Summers, Geithner, Emanuel, and Bernanke have the President's ear, I'm thinking we remain on the road to nowhere.

Barry can't change positions. He's already fully committed to the model of dealing with a debt problem with more debt. To step away now would invite attacks from to many angles. He would be accused of making a mistake/flip flopping, and he would also be accused of not sticking with the doomed Keynesian model by people like Krugman. The die has been cast and he must now move along with his decision.

Now having said that we might see a change post election as he surveys damage and then tries to pass the problems onto a new Congress.

The problem with American austerity is America is the greatest ponzi scheme. When austerity kicks in they are in effect admitting to the public it is a ponzi scheme. The blowout will be spectacular, and the damage done to the dollar incredible.

Whether Obama stays the course or changes to austerity, he is political kryptonite. Once he discovers that this November, perhaps he changes course... who really knows? The longer he delays austerity, the bigger the unwind will be... he will not be able to successfully pass the problems to a new Congress, as his "legacy" has already been set.

If the austerity measures gain traction elsewhere in Euroland and progress is made toward recovery, the dollar will crash regardless. Our best bet (really) is to take the medicine at the same rate as everyone else. Sure, the clothing will be revealed as the ponzi scheme that it is... but do nothing and the loss of the dollar as the world's reserve currency is pretty much guaranteed.

My fear is that we just keep on printing until that rubicon is pretty much crossed. We get there, then the pitchforks do come out.

I happen to think the Rubicon was crossed long ago. Back in Bush's reign at the latest time for a real point of no return. The dollar cannot be saved. Best case we suffer a massive devaluation and loss in standard of living and don't undergo to much social disorder. Quietly slip into an underdeveloped country. But where is the profit in that? They gain by keeping the ball in the air and looting while they can. Now the less brave are fleeing as we speak, they are taking their loot and running. Others are more dedicated to their looting ways are ready to ride it out.

Also never forget that this is the biggest criminal gang on earth. Do not think for a moment they would not see the pitchforks coming and deploy super weapons to stop them. Worse case for them they get bottled up in Mordor and then flee to their overseas assets as the nation slides into oblivion. In reality I think they are going to try to ride the tiger down with a police state (and stage an event if need be). It will be one hell of a ride, but I think a lot of people are going to want to get off.

lets not kid ourselves...austerity is a big scam, just to gain more time before the inevitable..it is too late for austerity, maybe 5-10 years ago it would have worked..how can greece or spain save itself with austerity or germany for that matter with its insolvent banks..

Don't get it? Busch spent the surplus trying the SAME fking thing Bama is. Keynesian stimulus from the supply side. He faced the same all-out debt meltdown deflation forces as have been lurking since 1970

That's why I said it will take a while. But once there is USA blood in the water, I will only be surprised by the speed at which the USA dollar is thrown overboard, not that it is. I personally think this is why the Fed and US Gvt controlled banks and brokers attacked the Euro. To discredit it in the eyes of people who are looking for something, anything, other than the dollar.

haha. she was knocked down by sarkozy and she's gonna be knocked down by obama. merkel "kills" every political opponent within her party and in the hole country. but in order to be accepted by her foreign colleagues, she's exactly that kind of brown-noser we all used to hate back @ school.

using the words 'iron', 'lady' and 'merkel' in one sentence is just ridiculous.greets from the south of germany

Who is Obama to be telling another country to cut deficits, when the US deficits have doubled in the past 2 yrs he has been in office and set to triple. Don't you think you need to get your own house in order, before you tell other people what to do??

This government is out of control, the American people better wake up. Bernanke and Geithner need to be removed from their posts quickly and prudently. By force if it comes to that, along with this crooked Congress.

June 22 (Bloomberg) -- Treasury Secretary Timothy F. Geithner said credit availability is improving and companies are building up unprecedented cash reserves, signs that the U.S. economy may be poised for increased growth.

“Credit conditions overall, which dragged our economy into a deep recession in 2007, no longer pose an obstacle to growth,” Geithner said today in testimony to the Congressional Oversight Panel. Corporations are raising money in capital markets “and have built up record cash reserves, which will eventually be reinvested and fuel growth.”

Credit availability is improving because no one can afford to build more credit. Quite the opposite... we are purging debt, and for good reason.

Companies who are building up cash reserves -- and not using them -- are doing so for a reason. Perhaps one of those reasons is to absorb expected losses on the balance sheet... or for re-investment 3 years down the road when asset values are 50% lower and interest rates are prohibitive.

Of course, we all here at ZH already know that. So do most businesses.

Oh, and poor credit conditions didn't drag this economy into recession in 2007(8)-- rampant fraud in the credit markets did that trick. Just something that we all know needs clarifiying.

Germany does not have the unfair advantage of possessing a reserve currency. It's a license to steal. The Germans know they cannot mimic the PIIGS or the US. They design and produce products others want. They educate their citizens to be leaders in their field. They don't believe in stupid concepts like a consumption based economy or you can base an economy on information or services. Germany will still need to tackle it's huge other problems however or they will go down the toilet too.

Germany does not have the unfair advantage of possessing a reserve currency. It's a license to steal.

absolutely correct.

They design and produce products others want. They educate their citizens to be leaders in their field.

absolutely incorrect. our citizens are educated to be super-useful slaves in big government and big corporations, just as anywhere else in state schools. critical thinking different than mainstream? no need for that! no employer wants people like you!

They don't believe in stupid concepts like a consumption based economy or you can base an economy on information or services.

haha! u don't know that guys of SPD, green party and the left party. what do you think, where the official €1.7bn of debts (>70% of GDP) come from? intelligent investments?

Already printed waiting for the other shoe to drop. Germany has made a killing off the Euro. They were able to grow exports to other EU cuntries and absord East Germany. They still have more gains to eek out of the Euro before the party ends.

"...a growth bubble (what is that?), then if the next crisis comes we won’t be able to pay for it" (what??? I don't even understand the concept. Every crisis needs to be paid for? Hooray for crazy people.)

you don't understand; Germany has a real economy. Germany makes things. They make automobiles that people want around the world. They make trucks and buses that people want around the world. They make heavy presses, machine tools, printing presses, industrial mechanical and electrical infrastructure. Germany has a real economy upon which to fall back.

The USA has mortgage brokers, real estate agents, home builders, tax preparers, real estate appraisers, building department employees, education administrators; none of these things are of any value to anyone, certainly not outside the USA

Saw "Designed in the USA" on a particular product recently which just about sums up the level of US manufacturing and the mentality of the average marketing graduate.

The part that Obama doesnt get is that the majority of German companies are still family owned. No shareholders means more cash going back into the firm / community / central tax. One firm will be responsible for keeping a small town fed, clothed and housed (common for mittelstand firms to own their own housing stock and then offer cheap rents to employees) - this is what Merkel is protecting.

If it does go tits-up in the fatherland, Uncle Sam left 10 nukes behind which may well come in handy.